Crude oil and retail fuel prices play important roles in production and transportation activities and hence affect the livelihood of individuals in an economy. Using the autoregressive distributive lag (ARDL) model, this paper tries to examine the impact of global crude oil and retail fuel prices in India on the manufacturing index (MI) as well as the consumer price index (CPI). It is further examined with a multivariate GARCH model because the error term follows an autoregressive moving average process. Using the ARDL model, our analysis shows a significant relationship between lnCPI and lnMI in the long run. Also, crude oil prices are seen to have significant inverse relations with lnMI and lnCPI. A positive relationship is observed between lnMI and lnCPI. Though the relationship between the growth of petrol or diesel prices and inflation is negative as a whole, it is not very consistent. The rising fuel price shows a dampening impact on the growth of the MI in the long run, and the error correction model (ECM) reveals a short-run adjustment towards a long-run equilibrium.
